NUA limitations
If individual rolls 401k to TIRA in 2025 that includes company stock, can they still pull company stock out in 2026 under NUA rules?
If individual rolls 401k to TIRA in 2025 that includes company stock, can they still pull company stock out in 2026 under NUA rules?
Permalink Submitted by Alan - IRA critic on Mon, 2025-09-22 17:08
If the rollover was done after the date of separation and prior to the LSD year (2026), the individual will need a new triggering event for the LSD to qualify for NUA because the rollover is considered an “intervening distribution” that erases prior triggering events. There are not many triggering events, but if the individual reaches 59.5 after the rollover, that will establish a new triggering event and the ability to do the LSD for NUA purposes.
If both of these triggering events are erased, the only remaining one is the participant’s death, after which the plan beneficiaries could utilize NUA after a qualified LSD.
Permalink Submitted by Don Warnke on Mon, 2025-09-22 17:15
what if the do Inservice distribution rollover into IRA in 2025 and then retire in 2026 would that be a triggering event? Or if they do partial rollover of some of the non employer investments this year and in 2026 they roll the remaining balance out including the company stock.
Permalink Submitted by Alan - IRA critic on Mon, 2025-09-22 18:42
Any transactions done prior to a triggering event are irrelevant. Therefore, an in service rollover could be done any time before retiring, and the retirement date (separation from service) would be a triggering event after which a qualified LSD could occur.
But a partial rollover after separation will eliminate separation as a triggering event unless the partial rollover was done in the same year as the LSD because in that case the partial rollover would be part of the LSD. Therefore, a partial rollover in 2025 after separation would require that the LSD is also completed in 2025. 2026 would be too late.
It is always wise to check with the 401k administrator to make sure that the LSD will be qualified for NUA purposes and also to get a quote on the cost basis of the NUA shares to make sure that the cost basis is low enough to justify using NUA. Generally, if the cost basis is over 30% of the current market value, the benefit of NUA is suspect.